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LESS IS MORE

4th February 2020

We are underway with the works in a property in Wembley.   The aim is to convert the property into a 5 room HMO.

The loft extension has already been completed in a matter of days.  The extension remains to be completed, and then the internals to be designed and finished off.

There exists the possibility to get even more rooms into the property; but the feeling was it would be better to get less rooms, and have higher occupancy levels.  Our lettings manager confirmed the one thing tenants prefer in shared accommodation is to have ensuite rooms.  Therefore, we have decided with our client to have them all ensuite.

Sometimes less is more.

The rooms will be large and spacious; we do not foresee any issues in renting these out.  I have been told by a local agent that even £850pm is possible.  I remember not that long ago this was the going rate for a 2 bedroom flat.

Actually, I find this hard to believe.  But this is the word on the street, straight from the horse’s mouth.  The gross income on this property will be £51K per annum on this basis.

Previously, the property was generating £21,600 pa.

In order to get from one position to the other has only involved two factors.  One is time, and the other is money.  The time period was six weeks for the planning; and we expect about two months for the build.  So, three and a half months in total; and of course the other being money, the cost of works in total is only £110K.

In short, an inject of £110K gives our client £30K extra income.  If we wipe off £10K for expenses, even a £20K net income is a good return on funds invested.

What makes this deal even more lucrative, is one mortgage provider is giving the money at 2.09% per annum fixed for the next 5 years.  So, the £110K is costing only £2,299 per annum.  Therefore, another way to look at this deal is to say you’re spending £2.3K pa in order to make £20K per annum.  This is 9 times your return – consistently.  The rate will be fixed for 5 years.  I can’t see any downside here.  The rents generally only tend to go upwards.

The local agent whom I consulted with was also commenting on how high the area has come up and at times he gets surprised at the rents achieved.

This was an interesting point to hear, even someone on the ground and in the trade gets stumped at the rents achievable.  I guess to some extent or another we all look in the rear view mirror and do not look at the terrain around us, let alone try to foresee where things could go.

This project will be over shortly; but we hope to do a few more of these.  If you have a freehold semi detached property and wish to enhance the rental, give our office a call, we already have the prototype.

Suresh Vagjiani

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